The Markets (as of market close November 4, 2016)

November 7th, 2016

Even a good jobs report wasn’t enough to steady investors last week, as stocks lost value from the prior week. Oil prices fell midweek following a report that crude oil inventories are larger than expected. While OPEC leaders agreed to reduce production following a September meeting, several countries sought and received exemptions from the cut, prompting crude oil production to increase. Crude oil prices continued to drop, closing the week 10.0% below the previous week’s closing price. With oil prices falling, energy shares tumbled, leading to drop-offs in the large-cap indexes such as the S&P 500. The NASDAQ, Russell 2000, and Global Dow each lost over 2.0% on the week, while the Dow fell 1.50%. The NASDAQ, which had been up over 6.0% year-to-date in early October, is close to its 2015 year-end value.

Prices increased on 10-year Treasuries as yields dropped. Gold had a good week, climbing 2.2%. It appears the tight U.S. presidential election is prompting investors to exercise caution for now.

The price of crude oil (WTI) fell by last week’s end, closing at $44.13 per barrel, down from the prior week’s price of $48.64 per barrel. The price of gold (COMEX) increased, closing at $1,305.60 by late Friday afternoon, up from the prior week’s price of $1,277.00.

Last Week’s Headlines

The jobs report for October was a mixed bag of information, but most of it was positive. There were 161,000 new jobs added in October. The unemployment rate fell slightly point to 4.9%. Employment continued to trend upward in health care, professional and business services, and financial activities. Over the year, average hourly earnings have risen by 2.8%.

In a move that was not unexpected, the Fed decided to maintain the federal funds rate at its current 0.25%-0.50% range. While the Committee acknowledges that the case for an increase in the federal funds rate has continued to strengthen, it decided, for the time being, to wait for some further evidence of continued progress toward further improvement in labor market conditions and a return to 2.0% inflation. Unless economic conditions worsen over the course of the next several weeks, it is expected that the Committee will raise interest rates following its last meeting of the year in December.

An indicator of inflationary trends that receives special consideration by the Fed, the personal consumption expenditures price index rose 0.2% in September from August. The PCE index is up 1.2% from a year earlier — still short of the Fed’s 2.0% target inflation rate.

In the manufacturing sector, Markit’s U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) for October was up with an increase in manufacturing activity.

The latest Non-Manufacturing ISM® Report On Business® shows economic activity in the non-manufacturing sector slowed in October. Non-manufacturing business activity, new orders, and employment all decreased in October from September. There has been a slight cooling-off in the non-manufacturing sector month-over-month, indicating that September’s increases weren’t sustainable.

Business sector labor productivity a bit during the third quarter of 2016, the U.S. Bureau of Labor Statistics reported last week, as output and hours worked increased. This is the first labor productivity increase out of the last four quarters. Labor costs increased in the third quarter, reflecting a 3.4% increase in hourly compensation and a 3.1% increase in productivity.

Eye on the Week Ahead

There isn’t much in terms of economic reports this week, which is probably a good thing as all eyes will be on the results of Tuesday’s U.S. presidential election.